The costs of fraud and corruption in the construction and real estate industries continue to grow. At the same time, the regulatory burden is ratcheting upward for companies and developers. Breaching these regulatory strictures is increasingly leading to multimillion-dollar fines and even criminal sanctions. K2 Intelligence is uniquely qualified to protect you from these problems and to prevent them from costing you money, hurting your reputation, or derailing your projects. The reason: we leverage the experience and expertise of Thacher Associates, which we acquired in 2012.
The Thacher Legacy
In 1985, New York Governor Mario Cuomo sought to retake control of New York City’s construction industry from organized crime and bid-rigging cartels. His solution: the state’s Construction Industry Strike Force. To lead it, he appointed Thomas D. “Toby” Thacher II and Joseph A. DeLuca.
In 1990, Governor Cuomo again turned to Thacher and DeLuca to design a program to protect his newly created New York School Construction Authority. Over the next six years, they designed and implemented numerous strategies to prevent, detect, and remediate corruption in construction of the city’s schools. Many of the people who supported them are now employed at K2 Intelligence.
In 1996, CBS’s 60 Minutes contrasted the techniques Thacher and DeLuca designed and implemented with the lax vetting of federal construction projects. Harvard University’s Kennedy School of Government cited the techniques as models that should be replicated by the federal government. The New York Times suggested “the Thacher model” be adopted throughout private industry.
While the initial focus was on fraud and corruption, now the emphasis is typically on countering waste and mismanagement and ensuring compliance with legal and regulatory requirements.
It’s estimated that in 2013 fraud and corruption in the global construction industry cost taxpayers and developers $860 billion. By 2025, the annual tab could reach $1.5 trillion. (Global Construction Perspectives and Oxford Economics. Global Construction, 2025)
Integrity monitoring is the proven solution to this challenge. Today with Thacher Associates fully integrated within K2 Intelligence, we remain the leader, with decades of experience overseeing the full spectrum of public and private construction projects, including many infrastructure initiatives.
A monitor works for a project owner, whether a government agency or private developer, to minimize fraud, waste, and abuse and assure compliance with relevant laws, regulations, and policies.
For government agencies, the efforts promote efficient and appropriate delivery of taxpayer funds. For private-sector owners, they protect the finances, operations, and reputations of all stakeholders. The oversight by a reliable, independent entity producing its own reports fosters transparency and accountability, enhancing public confidence.
Monitoring can work in one of two ways:
- As an independent private sector inspector general appointed by a government agency or private owner to monitor a specific contractor. The arrangement is imposed on the contractor as a condition of doing business with the public or private owner.
- As a project integrity monitor brought in by a government agency or private developer to promote compliance with requirements regarding all work on a construction project.
In either case, the emphasis is on preventing problems before they arise. When they do crop up, there may be significant recoveries because the schemes can be discovered in real time, as they’re unfolding.
Our objectives are aligned with those of the agency or developer managing the construction—building on time, within budget, and without financial or reputational scandal.
Monitoring Typically Proceeds Through Three Phases
First, we identify the corrupt or wasteful practices most likely to delay, derail, or embarrass, in terms of both impact and likelihood. We focus on systemic problems. This process may entail contract reviews, background checks, investigations, and audits.
Next we assess the controls in place to mitigate those risks. This approach enables our client to avoid wasting limited resources on areas of minimal concern or risk, while maximizing focus on issues of greatest concern.
After assessing the potential for fraud, waste, and abuse, our teams can implement solutions through steps such as:
- Bringing transparency and accountability to business transactions
- Enforcing, strengthening, or establishing controls to deter, prevent, and detect problems
- Creating a culture of compliance and accountability through training and audits
- Rehabilitating companies when problems occur
Case Study: World Trade Center Recovery Effort
Thacher led the first large-scale deployment of project oversight integrity monitors in a disaster recovery setting. At Ground Zero, our integrity monitors were engaged by the City of New York and were involved at every phase of the World Trade Center recovery effort, from contract award to on-site activity. The message the City of New York conveyed through its use of our integrity monitors was clear—integrity counted. Cleanup was on time and under budget. In fact, some estimates credited the integrity monitors with more than $60 million dollars in anti-fraud savings. In 2006, a U.S. House of Representatives subcommittee heralded the World Trade Center Integrity Monitorship Program as “an overwhelming success,” adding that the program was so effective because it was preventive in nature, with monitors calling for immediate corrections and remediation in real time versus after-the-fact auditing discoveries.
Case Study: Superstorm Sandy Reconstruction Efforts
The City of New York again utilized Thacher integrity monitors in the City’s Rapid Repair Program—a program designed to help residential property owners affected by Superstorm Sandy make emergency repairs while sheltering in their own homes. The State of New Jersey also codified this best practice when it utilized Thacher integrity monitors via bipartisan legislation authorizing their use on all major Superstorm Sandy reconstruction projects. Even federal officials mandated the use of integrity monitors following Superstorm Sandy when the Federal Transit Administration required any public agency receiving over $100 million in disaster relief funds to hire monitors.